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El Salvador: Political, Economic, and Social Conditions and U.S

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El Salvador: Political, Economic, and Social Conditions and U.S Order Code RS21655 Updated November 18, 2008 El Salvador: Political, Economic, and Social Conditions and U.S. Relations Clare Ribando Seelke Specialist in Latin American Affairs Foreign Affairs, Defense, and Trade Division Summary Throughout the last few decades, the United States has had a strong interest in El Salvador. During the 1980s, El Salvador was the largest recipient of U.S. aid in Latin America as its government struggled against the Farabundo Marti National Liberation Front (FMLN) insurgency during a 12-year civil war. A 1992 negotiated peace accord brought the war to an end and formally assimilated the FMLN into the political process as a political party. After the peace accords were signed, U.S. involvement shifted towards helping the government rebuild democracy and implement market-friendly economic reforms. Successive National Republican Alliance (ARENA) governments, including that of the current president, Tony Saca, have maintained close ties with the United States. The political scene in El Salvador has become increasingly focused on the January 2009 legislative elections and the March 2009 presidential election. U.S. observers are most interested in the upcoming presidential election, particularly since the FMLN candidate, Mauricio Funes, appears to be leading the ARENA candidate, Rodrigo Ávila, in the polls. This report will be updated. Background El Salvador, nearly the size of Massachusetts, is the smallest nation in Central America, and the most densely populated, with some 6.9 million people. With a per capita income of $2,540, it is considered by the World Bank to be a lower-middle-income country. Since the early 1990s, El Salvador has posted economic growth, held free and fair elections, and survived a series of natural disasters. Significant problems remain, however, such as endemic poverty and rampant gang violence. These social problems, as well as a polarized political system, are inextricably linked to the country’s devastating civil war, which lasted throughout the 1980s and resulted in some 75,000 deaths. Political Situation The current president of El Salvador, Antonio (Tony) Saca of the conservative ARENA party, was elected in March 2004, along with Ana Vilma de Escobar, El CRS-2 Salvador’s first female vice president. Saca, a well-known businessmen and sports announcer, won the Salvadoran presidential election handily in the first round with 57.7% of the vote. His nearest rival, Shafick Handal of the FMLN, a 73-year-old former guerrilla and Communist party member, obtained 35.7% of the vote. Neither of the two third-party candidates received even 5% of the vote. President Saca’s first round victory was a serious setback for the FMLN, which had gone into the campaign with high expectations based on its strong performance in the March 2003 legislative elections. In 2005, tensions within the party resulted in defections to a new party, the Democratic Revolutionary Front (FDR). However, in the March 2006 legislative elections, the FMLN, recaptured left- leaning electoral support from the FDR, winning 32 of 84 legislative seats. Legislative Record. Early in his term, President Saca garnered broad support for criminal justice reforms and used multiparty negotiations to facilitate passage of some aspects of his reform agenda, including an anti-terrorism law and electoral reform. Saca used support from third parties in order to ratify the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) over FMLN objections. He also used that support to secure passage of sweeping legislative reforms backed by the United States as prerequisites for CAFTA-DR implementation. President Saca has since struggled, however, to gain legislative approval for some of his budget proposals and foreign loans, which has left some social programs underfunded. There are also mounting frustrations that neither President Saca nor the Legislative Assembly has effectively addressed the country’s persistent crime problem. Legislative activity has stalled in recent months as attention has shifted towards the upcoming 2009 elections.1 2009 Elections. Neither ARENA nor the FMLN are expected to win a majority in the legislative elections scheduled for January, meaning that whomever is inaugurated as president in June 2009 will have to seek cross-party approval for his legislative agenda. The two main candidates for the 2009 presidential elections are Mauricio Funes, a well- known journalist and talk show host standing for the FMLN, and Rodrigo Ávila, former head of the Salvadoran National Police standing for the ARENA party. Many analysts are predicting that the 2009 elections will be more competitive than previous elections given that the FMLN has selected a moderate media figure rather that a former guerrilla leader to serve as its candidate. The more radical wing of the FMLN will be represented by Funes’ running mate, Sánchez Céren. Analysts predict that Funes’ main challenge will be to criticize current ARENA policies without alienating business leaders or foreign investors. Ávila may need to distance himself from the Saca government’s increasingly unpopular economic and security policies. Although Funes appears to be maintaining a lead in most opinion polls, the race has tightened since Ávila selected Arturo Zablah, a political outsider who may appeal to moderate voters, as his running mate.2 Economic and Social Conditions In the 1990s, El Salvador achieved notable stability and economic growth. The Salvadoran government embraced a “neo-liberal” economic model, cutting government 1 “Country Report: El Salvador,”Economist Intelligence Unit, November 2008. 2 “People Profile: Mauricio Funes,” Latin News, October 16, 2007; “People Profile: Rodrigo Ávila,” Latin News, February 12, 2008; “El Salvador: FMLN Remains Electoral Favorite,” Oxford Analytica, November 5, 2008. CRS-3 spending, privatizing state-owned enterprises, and adopting the dollar as its national currency. El Salvador is now one of the most open economies in the world, but, after posting strong growth rates in the 1990s, it registered only 2% growth from 2000-2004. Between 2000 and 2003, El Salvador’s economic stagnation was linked to disruptions that resulted from Hurricane Mitch in 1998, two major earthquakes in 2001, a decline in coffee prices, and the slowdown in the U.S. economy following September 11, 2001. El Salvador has posted moderate economic growth rates in recent years, but high food and energy prices, as well as the current slowdown in the U.S. economy are likely to have a negative impact on the Salvadoran economy. While remittances, agricultural exports, and reconstruction projects increased in 2005, high oil prices, natural disasters (including Tropical Storm Stan), and a slump in the maquiladora sector (large assembly plants operating in free-trade zones) kept growth at a moderate 2.8% in 2005. GDP growth in El Salvador accelerated to roughly 4% in 2006, spurred by the implementation of the CAFTA-DR, diversification of the country’s export sector, and high global prices for coffee and sugar. The economy again expanded by an estimated 4.7% in 2007, but analysts predict that GDP growth will slow to roughly 3.3% this year. Remittances, largely sent from Salvadorans living in the United States, now contribute roughly 18% of El Salvador’s annual GDP, making the country’s economy increasingly dependent on the U.S. economy.3 Moreover, despite DR-CAFTA, increasing competition from Asian and other Central American producers has limited Salvadoran exports to the United States. El Salvador’s economy has fared better than some other countries in the hemisphere, but the country’s growth rates have not been high enough to produce dramatic improvements in standards of living. With 48% of the population living in poverty and more than 25% reportedly feeling they must migrate abroad in search of work, some critics have argued that the average Salvadoran household has not benefitted from neoliberalism. Dollarization has raised the cost of living while its primary benefits, lower interest rates and easier access to capital markets, have not resulted in an overall decline in poverty levels. Between 1989 and 2004, poverty levels rose from 47% to 51%. Additionally, the fruits of stable economic growth have not been equitably distributed as the income of the richest 10% of the population is 47 times higher than that of the poorest 10%. Although migration has reduced rural unemployment and infused some households with extra income in the form of remittances, it has caused social disruptions and resulted in a “passive and dangerous dependency” in some communities.4 Gangs and Violence.5 Pervasive poverty and inequality, unemployment and underemployment, drug trafficking, corruption, and illicit firearms have contributed to the related problems of crime and violence that have plagued El Salvador since its civil war. As many as 30,000 Salvadoran youth belong to maras (street gangs). Salvadoran National Police officials have estimated that gangs are responsible for up to 60% of homicides, but 3 “Government to Promote Inscription to Preferential Immigration Status for Salvadorans in the U.S.” Global Insight, July 6, 2007. 4 Dovelyn Agunias, “Remittance Trends in Central America,” Migration Policy Institute, April 2006; Sarah Gammage, “Exporting People and Recruiting Remittances: A Development Strategy for El Salvador?,” Latin American Perspectives, November 2006. 5 For more information, see CRS Report RL34112, Gangs in Central America. CRS-4 evidence
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